Insurers told to pay costs in personal injury cases

Personal injury claimants being refused the payment of their legal costs in "no win, no fee" cases have won a landmark court ruling that may land the insurance industry with a £4bn bill.

Personal injury claimants being refused the payment of their legal costs in "no win, no fee" cases have won a landmark court ruling that may land the insurance industry with a £4bn bill.

A ruling yesterday in the Supreme Court Costs Office, part of the High Court, means that more than 200,000 current personal injury victims will be able to recover the legal costs of their cases.

Since Legal Aid was abolished in 1999, personal injury claimants have been able to take out an "after-the-event" insurance premium to cover the possibility of their opponents' legal costs being awarded against them if they lose.

Norwich Union, Axa, and the Co-operative Insurance Society, however, are challenging the level of costs customers are claiming and are withholding payments until the matter is settled in court. Solicitors, as well as claimants, are waiting to receive their fees.

The claimants' cases are being supported by The Accident Group (TAG), a personal injury compensation specialist, which is trying to force insurers to pay legal costs.

It believes the ruling could cost insurers up to £4bn, on the basis of an average cost per case of £2,000.

The judge did not, however, find fully in TAG's favour. It had been hoping to receive £1,360 in costs from the insurers per case, based on the costs in 2000 to 2001 when the cases tested in court were held. This includes an insurance premium of up to £997 and a fee to a TAG agent of £364. The judge presiding over the case, however, yesterday ruled that costs of up to £480 were recoverable from the insurers.

"The insurers thought the costs TAG were trying to claim were too high, and the ruling yesterday supports that. The insurers have always been willing to pay reasonable figures," said Andrew Parker, of Beachcroft Wansboroughs, the solicitors acting on behalf of the three insurers.

TAG's lawyers, however, believe the ruling supports their claims and is fundamental in establishing that their business model is sound and that solicitors are entitled to recoup their costs from the insurers.

Anthony Dennison, a partner at Rowe Cohen, the firm acting on behalf of TAG, said: "Money which has been wrongly retained by insurance companies will now be released to those claimants and solicitors that have been waiting for a lengthy period.

"The door is now open for additional payments to be settled on," he added.

A second TAG test case is due in the Court of Appeal this month that will iron out the legality of "no win, no fee" contracts. A number of insurers have challenged the contracts on the grounds that the agent who sells the policy is not a qualified solicitor.